Goodrich Swaps Its Way To Longer Haynesville Laterals

The Haynesville remains Goodrich Petroleum Corp.’s (AMEX: GDP) top priority as the Houston-based E&P leans toward smaller deals to go longer in the shale play.

During its first-quarter earnings on May 15, Goodrich revealed it agreed to an acreage swap in northern Louisiana set to boost its inventory of long-laterals in the Haynesville. The company also disclosed a small noncore divestiture of its Tuscaloosa Marine Shale (TMS) assets.

A sale of Goodrich’s Eagle Ford position might also be on the horizon, but in the meantime, the company will continue to focus on smaller deals to bolster its Haynesville operations, said Rob Turnham, Goodrich’s president and COO.

“We continue to work some of the smaller transactions and bolt-on opportunities because we see a real benefit to kind of leveraging into that. In particular, if we can do so by virtue of kind of drilling our way into the block,” Turnham said during Goodrich’s earnings call on May 15.

VIDEO - Executive Interview: Turnham Talks Haynesville Growth

The acreage swap, with an undisclosed company, included a portion of Goodrich’s leasehold in the Bethany-Longstreet Field of Caddo Parish, La. Goodrich said the transaction will boost its operated inventory in the Haynesville by roughly 10% with the addition of 10,000-ft laterals.

“In general, longer laterals typically make better wells. Although we are focused on IRR not EUR, as returns matter more than ultimate recovery of reserves,” Turnham said.

He added Goodrich will continue to swap acreage or drill joint wells with offset operators to further increase its long-lateral inventory, as the region is “a fairly small geographic area dominated by 15 operators, many of whom are bigger.”

On May 15, Goodrich also said it entered an agreement to sell a portion of its interest in the western area of the company’s TMS acreage position in East Feliciana and West Feliciana parishes, La., for $3.3 million. The transaction is expected to close by June 15. The buyer was undisclosed.

The TMS divestiture follows Goodrich’s sale in March of East Texas assets in the Angelina River Trend to an affiliate of BP Plc (NYSE: BP) for $23 million. The company said both transactions provide additional liquidity to accelerate development of its core Haynesville position.

Following the East Texas asset sale, Goodrich paid all outstanding amounts under its senior credit facility. The company ended the first quarter with $9.7 million cash and nothing drawn on its revolver.

Chairman and CEO Gil Goodrich said, as a result, the company’s balance sheet remains in “excellent condition” with net debt of $39 million at the end of the quarter.

In addition to its positions in the Haynesville and TMS, Goodrich also holds a position in the Eagle Ford which the company is considering to sell.

Goodrich said he believes the company’s 14,000-net-acre footprint in the Eagle Ford is a tier 2 position in the overall play and is “receptive to proposals to take us out of that.”

“We’ve had some conversations along those lines, nothing definitive to talk about this morning,” Goodrich said during the company’s earnings call. “But I think that's something that’s pretty high on the noncore divestiture list for the company.”

As for the company’s remaining 65,000 net acres in the TMS, Goodrich said the company remains “pretty happy” with its position. He added the company will closely watch the emerging Louisiana Austin Chalk play as well as the oil price rally to determine its future course.

“Right now, we got about 35,000 to 40,000 acres that’s HBP [in the TMS]. I think we're pretty happy to just kind of sit and hold that and see how this oil rally plays out as well as what’s going on around us in the Louisiana Austin Chalk,” Goodrich said.

For the first quarter, Goodrich reported a net loss of $5.3 million vs. a net loss of $5.7 million a year ago. The company’s production for the quarter of 37 million cubic feet equivalent per day was negatively impacted by offset frack operations and delays due to an equipment malfunction.

For 2018, Goodrich has set a capex of $85 million to $95 million and is planning to rapidly grow production and EBIDTA while keeping debt metrics at conservative levels—focused 100% on its core Haynesville position.

Goodrich has a 10- to 15-year inventory of development locations and about 1.2 trillion cubic feet of reserve potential in the Haynesville, according to its latest investor presentation.

Emily Patsy can be reached at epatsy@hartenergy.com.